Posted on 03/08/2005 2:54:18 PM PST by Torie
The Debt-Peonage Society
By PAUL KRUGMAN
Published: March 8, 2005
Today the Senate is expected to vote to limit debate on a bill that toughens the existing bankruptcy law, probably ensuring the bill's passage. A solid bloc of Republican senators, assisted by some Democrats, has already voted down a series of amendments that would either have closed loopholes for the rich or provided protection for some poor and middle-class families.
The bankruptcy bill was written by and for credit card companies, and the industry's political muscle is the reason it seems unstoppable. But the bill also fits into the broader context of what Jacob Hacker, a political scientist at Yale, calls "risk privatization": a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity.
The bill would make it much harder for families in distress to write off their debts and make a fresh start. Instead, many debtors would find themselves on an endless treadmill of payments.
The credit card companies say this is needed because people have been abusing the bankruptcy law, borrowing irresponsibly and walking away from debts. The facts say otherwise.
A vast majority of personal bankruptcies in the United States are the result of severe misfortune. One recent study found that more than half of bankruptcies are the result of medical emergencies. The rest are overwhelmingly the result either of job loss or of divorce.
To the extent that there is significant abuse of the system, it's concentrated among the wealthy - including corporate executives found guilty of misleading investors - who can exploit loopholes in the law to protect their wealth, no matter how ill-gotten.
One increasingly popular loophole is the creation of an "asset protection trust," which is worth doing only for the wealthy. Senator Charles Schumer introduced an amendment that would have limited the exemption on such trusts, but apparently it's O.K. to game the system if you're rich: 54 Republicans and 2 Democrats voted against the Schumer amendment.
Other amendments were aimed at protecting families and individuals who have clearly been forced into bankruptcy by events, or who would face extreme hardship in repaying debts. Ted Kennedy introduced an exemption for cases of medical bankruptcy. Russ Feingold introduced an amendment protecting the homes of the elderly. Dick Durbin asked for protection for armed services members and veterans. All were rejected.
None of this should come as a surprise: it's all part of the pattern.
As Mr. Hacker and others have documented, over the past three decades the lives of ordinary Americans have become steadily less secure, and their chances of plunging from the middle class into acute poverty ever larger. Job stability has declined; spells of unemployment, when they happen, last longer; fewer workers receive health insurance from their employers; fewer workers have guaranteed pensions.
Some of these changes are the result of a changing economy. But the underlying economic trends have been reinforced by an ideologically driven effort to strip away the protections the government used to provide. For example, long-term unemployment has become much more common, but unemployment benefits expire sooner. Health insurance coverage is declining, but new initiatives like health savings accounts (introduced in the 2003 Medicare bill), rather than discouraging that trend, further undermine the incentives of employers to provide coverage.
Above all, of course, at a time when ever-fewer workers can count on pensions from their employers, the current administration wants to phase out Social Security.
The bankruptcy bill fits right into this picture. When everything else goes wrong, Americans can still get a measure of relief by filing for bankruptcy - and rising insecurity means that they are forced to do this more often than in the past. But Congress is now poised to make bankruptcy law harsher, too.
Warren Buffett recently made headlines by saying America is more likely to turn into a "sharecroppers' society" than an "ownership society." But I think the right term is a "debt peonage" society - after the system, prevalent in the post-Civil War South, in which debtors were forced to work for their creditors. The bankruptcy bill won't get us back to those bad old days all by itself, but it's a significant step in that direction.
And any senator who votes for the bill should be ashamed.
Actually debt slavery is alive and well in some third world countries. I believe in Thailand rural debtors frequently sell their daughters as sex slaves in Bangkok to pay off debts. I suppose this is good for certain Thai creditors but is it really a good idea? I submit that these third world countries are third world countries for a reason, a part of which is a medieval mindset with respect the debtor/creditor rights.
Where we can still reason together, I reject appeals to authority.
Further, I reject bibles as authorities.
In many or most states those are fair game right now.
Good point. Eliminate the loopholes for everyone, including the rich.
Your #220 is a great post. I had to call my wife over and read it aloud to her. We weren't able to vote for either major party (or any party) in the Presidential Election due to concerns such as you (so) elegantly expressed.
If the lender doesn't understand the contract, he can refuse to sign, or offer a counter contract. and/or hire a lawyer.
If he doesn't understand that he doesn't understand, perhaps we need to revoke his legal adulthood.
Stupidity is NOT a capital crime, but preying on the stupid often is a crime, AS IT SHOULD BE. The credit card companies, payday lenders, and check cashers are right on the edge of the line between aggressive lending and legally sanctioned criminality. IMHO, this legislation pushes all of the moneychangers over that line.
Or do you support predatory lending and preying on the weak and uninformed? Those are not on my conservative values list.
S9, I daresay that if you were in similar circumstances today, you might not have been able to dig out. Why? If your credit score went down, which can happen even if you're never late with any payment, your rates can be jacked into the 20%-plus range. Unless you're able to make heroically large payments, you'd never get the balances down.
The predatory lending practices, out-of-control late and overlimit fees, and "universal default" have caused a lot of people to say "I want to get out from under this by paying the principal off, but because of the ridiculous rates it can't be done unless we live out of a cardboard box." So they file.
And of course we should not forget that illness and medical bills are the major factor in about half of bankruptcy filings (I personally think it's higher, because a lot of people feel obligated to put large medical bills on plastic when they should be negotiating the outrageous fees with the providers down to sane levels).
This bill is a sop to the lending industry pure and simple, and it does have the potential to wreak havoc on the economy, as others have noted.
And the posters that have noted that this bill, if it passes, is a big political opening for the liberals are absolutely correct.
Wow, you said a lot. I could not agree more.
We don't allow minors to sign legally binding contracts. Perhaps we have masses of biological adults we should treat as minors.
We could have tests for attaining legal sovereignty, independent of age. Then we could consider null any contract with a non-sovereign.
Here's my dream: W vetos the legislation on grounds of compassionate conservatism and says he won't look at it again until there are serious control put on rates and fees.
A pipe dream, I'm afraid.
Yes mortgages are secured debt but I can tell you (as someone who works for a mortgage company) that there are very few home mortgages - certainly none to typical middle class homebuyers -- that are non recourse (meaning that the bank can't go after the individual, only the property). Yes, there are some state rules that limit a bank's right to go after the individual (if a bank lends 100K on a home and, years later when the balance due is 80K, forces a foreclosure sale and then obtains the property by making a successful 60K bid at the sheriff's sale, the bank is going to have a tough time, here in NJ anyway, getting the other 20K from the individual), that hasn't been a big problem in the last few years because of the rise in value in the real estate market. Anybody who thinks that the personal obligation of the mortgage note is of little significance, ought to talk to someone who separates from a spouse who keeps the house and doesn't pay the mortgage. If he thinks the bank won't come after him personally for those missed mortgage payments, he's making a miscalculation.
Post #11...Well stated!
That is not as outrageous a concept as it would first appear. The usurious lending industry would be the first in line to oppose it, even ahead of the ACLU.
Unfortunately, it would also be open to abuse by those who would withhold what you define as sovreignty because you aren't politically correct in your thinking. I wouldn't want to give a Democratically-controlled government the opportunity.
Now if you wanted to mandate some kind of evidence of financial astuteness before allowing someone to borrow money, that might make sense. The predatory lending industry would NEVER let that happen.
OK, but I stand by my characterization of California law. About that I am, as it were, a rather highly paid expert.
Kudos to you Jim for making it possible.
That is not as outrageous a concept as it would first appear. The usurious lending industry would be the first in line to oppose it, even ahead of the ACLU.
Unfortunately, it would also be open to abuse by those who would withhold what you define as sovreignty because you aren't politically correct in your thinking. I wouldn't want to give a Democratically-controlled government the opportunity.
Now if you wanted to mandate some kind of evidence of financial astuteness before allowing someone to borrow money, that might make sense. The predatory lending industry would NEVER let that happen.
All good points.
We could make all loans legally unenforceable. The penalty of a bad credit rating would deter some bad borrowing, and the lack of legal enforcement would sure alter current lending practices.
Free up some court time.
That idea almost makes too much sense. Will have to think about that one.....
"They don't cause the spendthrift to get into debt - the spendthrift alone decides that."
It would be nice if you didn't preface everything you say with the word "spendthrift". Many people (especially old people) who started out responsibly using credit cards get in a crunch just trying to pay for living expenses, when confronted with divorce, sickness, a disability, or other unforeseen misfortune. Not everyone is a spendthrift. You have a very cynical viewpoint of your fellow man. Yes, some are spendthrifts, but a whole lot more of them aren't. No allowances were made in this bill for old people who are about to be booted out of their homes, or for medical emergencies, or for someone who becomes a product of divorce (and the spouse takes off leaving the other one w/out support) and they end up stuck with the bills. All exceptions for these kinds of reasons were voted down. This bill will just further enhance the image of Republicans as a hard hearted, cold party.
Meanwhile, the credit card companies get away with jacking up interest rates at whim, charging exhorbitant late fees, cheating by saying a payment arrived late when it didn't and the company sat on the payment until after the due date. They are constantly changing the terms of their cards, shortening the time period in which the bill has to be paid, soliciting young college students on campus, enticing them with products kids their age are attracted to, knowing that many people that young don't know how to handle the responsibilities of credit cards. They set high dollar limits on their cards, making it easier to overspend when you know your card can go as high as $5,000 plus, even if your income is not in a category that can handle that kind of debt burden. The credit card companies are snakes, but no one is going after them, are they? Too many Pubs (and Dems too) are in the pocket of big corporations who donate lots of money to campaigns. The whole system here is rotten.
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